From the Editors…

So you think you know a thing or two about the railroad business. Oh really?

Editors: D & D Carleton              Proofreading: Black Bear Wordsmiths (blackbearws@yahoo.com)

 The “invisible hand” versus “the art of the possible”

It is no secret that railroads, as investment opportunities, have regained a stature not seen since what has been labeled as “the gilded age.” With such attention, however, comes great responsibility. Since about the most recent turn of the century, there remain seven major railroads in North America: Union Pacific, BNSF Railway, Norfolk Southern, CSX, Kansas City Southern, Canadian National and Canadian Pacific. It is also no secret that the Canadian Pacific is perceived as the weakest of the seven. Although one of the smaller roads, it still boasts a market cap of $13.2 billion and an enterprise value of $17.7 billion.

For those of us with our boots on the ground, there have long been signs of increasing trouble at CP. Now the trouble is in the top office. In late October, 2011, Pershing Square Capital Management, an activist hedge fund based in New York City, announced it had acquired a 12.2 percent stake in CP. Between then and now, the stakes have only risen to a current 14.2 percent, and the relationship between Pershing Square and the CP board has become bloody.

Contrary to your statement in the letter that we “acknowledge” that we have no plan to improve Canadian Pacific’s operating performance, we do have a plan, and we have made that plan clear both in our initial meeting and in subsequent communications with you. Our plan is to transform Canadian Pacific from the worst performing railroad in North America into one of the best by effectuating a cultural and operational transformation of Canadian Pacific which begins with a new leader. – Excerpt from January 3, 2012 letter from Pershing Square’s William Ackman to CP chairman John Cleghorn

Pershing Square is now promoting to shareholders a slate of seven alternative directors as part of its CP turnaround strategy. Two of these are significant: Stephen Tobias and E. Hunter Harrison.

For most, these names may not ring a bell; but for railroaders, these men are superstars. Both of them are past recipients of the Railway Age Railroader of the Year award: Tobias, as Norfolk Southern Chief Operating Officer and later Vice Chairman; Harrison, as President and Chief Executive Officer of CP-rival Canadian National. Tobias was a lifelong employee of NS and its predecessors, starting in 1969 as a junior engineer. He worked his way through the ranks over the next four decades until being named Vice Chairman and Chief Operating Officer in 1998. He retired from NS in 2009. Harrison’s work history is not as straightforward. He started in1964 with the St. Louis-San Francisco Railway, which later became part of the Burlington Northern. Later, he would be President of the Illinois Central which was acquired by Canadian National in 1998. He retired at the end of 2009 as CEO. It is anticipated that Harrison would reprise that role at CP if Pershing Square’s seven alternative directors are elected by the stockholders. One slight problem: That job is currently held by Fred Green.

The past six months have seen quite the flurry of activity at CP’s headquarters in Calgary, Alberta. Press releases, video streams of meetings and letters to stockholders have literally flowed unabated in preparation for the annual stockholders meeting set for May 17. A letter to the shareholders dated March 7, 2012 sets the company’s tone:

CP’s management team is aggressively and successfully executing on the Company’s Multi-Year Plan and has the full support of the Board of Directors. Your Board and management team firmly believe the CP’s string, established relationships with customers will continue to create significant value for shareholders. Strong and profitable customer relationships are essential to maintaining and expanding the volume growth that underpins CP’s Multi-Year Plan to increase earnings per share, drive down the railroad’s operating ratio and deliver greater shareholder value. The Board believes that Pershing Square’s demand that the Company replace its CEO, Fred Green, with Hunter Harrison would put at severe risk the significant forward momentum the Company is making on the Multi-Year plan.

Interestingly, CP developed and released its “Multi-Year Plan” in January; two months after Pershing Square had announced its investment.

It should be noted that none of what has transpired was at the behest of Washington or Ottawa. What we see at work has been described as “the invisible hand,” that is, when enough people believe the bottom line could be improved, something will be done.

Meanwhile, back in Washington…

Something that has been mentioned repeatedly by transportation advocates is the undying loyalty of the current presidential administration to “rail.” As evidence, they point to the administration’s mention of “High-Speed Rail” in a State of the Union speech. As we have covered here in the pages of This Week, the latest iteration of domestic “Fast Train Fever” is going the way of the previous cycles, with the last gasp — California’s HSR dreams — on life support, and the pulse slowly ebbing into silence. Rail was not mentioned in the latest State of the Union address of this past January. Perhaps the administration has given up hope on rail. If so that may explain its latest nomination:

President Obama has nominated former U.S. Rep. Yvonne Brathwaite Burke, a trailblazing fixture in Los Angeles area politics, to the AMTRAK board of directors, the White House announced Thursday.

As a young attorney in 1966, Burke made history when she became the first African American woman elected to the state Assembly. She was elected to Congress in 1972 and served until 1978. In 1979 she was appointed to a vacancy on the Board of Supervisors but lost her election bid the following year in a racially charged contest. In 1992, she won election to the board from a different district. – Los Angeles Times, March 29, 2012

Before proceeding any further, let us be clear that we are not, in any way, minimizing Representative Burke’s long and distinguished record of accomplishments. She most definitely blazed trails, and when the doors would not open, she broke through them. That said, what does she know about railroads and their governance?

Currently, the seven members of the Amtrak board are: Thomas C. Carper (Chairman of the Board), Nancy A. Naples (Vice Chairman of the Board), Joseph H. Boardman (Amtrak President and CEO), Anthony R. Coscia, Bert DiClemente, Jeffrey R. Moreland, and Ray LaHood (U.S. Secretary of Transportation). Of these, only Mr. Moreland has a working history with a railroad. Starting in 1978, Mr. Moreland joined the Santa Fe Railway as Assistant General Attorney, in 1994 became Vice President for Law and General Counsel for Santa Fe’s parent company, and later retired with the same title from BNSF Railway.

It has been intimated that Amtrak has lacked a true operating foundation since 1993, when the legendary Graham Claytor retired. What did he bring to the table?

Graham Claytor had, first of all, had the stature on the Hill that we needed, but more importantly, he came out of a business environment. Even though he was a rail buff, which he was, he was a businessman, first and foremost, and that’s what we need at Amtrak. – Kathleen Gordon, Amtrak Senior Director, e-Commerce, retired, Amtrak: The First 40 Years 1971-2011, RK Publishing

Mr. Claytor never singled out one aspect of the corporation to blame for all of its faults. He knew the Northeast Corridor was a drain on finances, but accepted that fact as federal welfare to state-run operations. Under Claytor, Amtrak was a fairly well run “traditional” railroad focused on a national system. After his demise, however, the company morphed into a government agency with ferocious survival instincts. It became very NEC-centric, and continued that path by expanding its corridor service with state partners, particularly California.

Politics, “the art of the possible,” is not concerned with the bottom line, but rather short-term survivability. Politicians count on the short-term memories of their constituents to traverse the delicate tightrope walk that is their elected term in office. Railroading, on the other hand, is anything but a short term-enterprise. All railroads need long-term planning to succeed, and a core philosophy to be the thread that weaves those plans together. Since politics are by their very nature mercurial, anything beholden unto politics will be inefficient and unreliable. That pretty much explains Amtrak after 40 years.

There have been many attempts to recruit people with railroading (or at the very least, transportation) experience to the Amtrak board. Mr. Claytor was appointed Amtrak president in 1982, coming out of retirement. This was one year after Congress had altered Amtrak’s original board structure and governance, in which the four railroad common stockholders were represented on the Amtrak board and the common stock had voting rights. (The eviction of the railroad shareholders from the board and their disenfranchisement was of dubious constitutionality, but was never challenged.)

The pendulum was to swing in the other direction in 1997, when the Amtrak Reform and Accountability Act ended the monopoly voting rights of the preferred stock, held only by the Department of Transportation, restoring the original voting status of the railroads’ (now including the corporate successor of Penn Central) common stock. Nevertheless, Amtrak has continued to ignore the common shareholders, in violation of District of Columbia corporate legal requirements.

The 1997 legislation also mandated a nonpartisan expert board of directors, using language parallel to the National Transportation Safety Board statute . All directors were to possess “technical qualification, professional standing, and demonstrated expertise in the fields of transportation or corporate or financial management,” and could not be “representatives of rail labor or rail management.” Sadly, these requirements were flouted by the initial board appointments by the Clinton Administration. The following regime would attempt to follow the rule of law only to feel the blowback from the usual sources:

Bush appointees to Amtrak board foreshadow breakup and privatization

President George Bush’s proposed nomination of three new members to Amtrak’s board of directors foreshadows the administration’s support for breaking up the national passenger rail system and selling off its most profitable parts to private industry.

Among the nominees is Louis S. Thompson, who retired earlier this year from the World Bank. Thompson began his career at the Transportation Department and played a role in creating Amtrak. At the World Bank, Thompson spearheaded successful efforts to privatize railroads in Argentina, Chile, Mexico and Romania; he also played a role in similar efforts to privatize railroads in China, India and Russia.

The second nominee is Robert Crandall, who retired from the chairmanship of American Airlines parent company AMR in 1998. Since then, Crandall has served on several boards, including Halliburton, the company formerly headed by Vice President Dick Cheney. The last nominee is Floyd Hall, a long-time Republican fundraiser and former executive of companies such as Singer Sewing Machine Co., the Grand Union Co. grocery chain and KMart. – Brotherhood of Locomotive Engineers and Trainmen quoting the World Socialist Web Site, Published by the International Committee of the Fourth International (ICFI), 30 September 2003

Subsequently, all the actual appointees were virtually devoid of any of the listed qualifications, and consisted mainly of elected officials, lobbyists, and others of similar background.

The pendulum was to swing yet again in 2008, with the enactment of the Passenger Rail Investment and Improvement Act (PRIIA). The 1997 board statute was completely repealed, and replaced with a new, larger (nine- versus seven-member) board structure, with language openly inviting the appointment of politicians and the politically connected. The following are listed in PRIIA as alternative and independent qualifications for board membership: “general business and financial experience, experience or qualifications in transportation, freight and passenger rail transportation, travel, hospitality, cruise line, or passenger air transportation businesses, or representatives of employees or users of passenger rail transportation or a State government.” PRIIA also made the Amtrak board avowedly partisan, with a formula usually applied to multi-member federal agencies: “Not more than 5 individuals appointed…may be members of the same political party.” (“Balanced representation” of “major geographic regions served by Amtrak” is a recommended, but not required, consideration.) The ensuing appointments have been predictable.

One by one, each potential expert appointee has not passed political muster for one reason or another. Ultimately the jobs go to those who will not make anyone uncomfortable within the company, including, above all, the NEC orientation of Amtrak. Thus, it again appears that the status quo is not endangered. How will this all end? The words of Mr. Claytor from two decades ago now seem prophetic:

“Not everybody knows, and it does not always come through in the press, that the basic statute provides that Amtrak is not to be a government agency and is to be operated as a for-profit, privately owned railroad corporation. If it weren’t for that, a lot of us wouldn‘t be here, because I don’t‘ think that it is possible to run a railroad as a government agency and not have it be a disaster.” – Interview with Graham Claytor, Trains magazine, June 1991

The Third Century.

Historians and preservationists, cover your ears: The Pennsylvania Railroad was not entirely wrong in demolishing New York’s Pennsylvania Station.

More on that in a moment. First a moment of reflection.

To the inspired Reader: why are you here?  Why are you reading these columns?  Quite possibly it is because you wish to see more trains in more places for more people.  Perhaps you wish to improve our society, our ecology, or our economy.  Perhaps you desire those trains so that you and your family and friends could use them.  Some of you do, or could, make a living in the railroad industry.  None of you, I suggest, would be here if you did not wish to adapt the world a little to yourself.

Everything is possible.  Look at just the most recent quarter century.  Earthquakes and tsunamis have wiped whole cities off the map.  The Soviet Union fell.  Big things change all the time.  There is no end to history — indeed, as we look back, even the chapter divisions become fuzzy, leaving only an ebb and flow like the tide. At length, I find peace, and power, in this.

Enter the third century

From the perspective of two hundred years ago, 1812, the year the United States declared war on Great Britain, it would be a decade or two before the establishment of regular passenger train service.  Yet inventions like Eli Whitney’s cotton gin (1793) and James Watt’s steam engines (first commercially deployed in 1776) were fueling the nascent Industrial Revolution, and there were fortunes to be made for those who could recognize and seize opportunities.  (Further reading: http://en.wikipedia.org/wiki/Oldest_railroads_in_North_America )

Today is no different, for the tide is again turning.  Caterpillar is bringing some production back from Japan to a brand-new factory in Georgia; Michelin Tire is building a new plant in Indiana. Kinkisharyo’s innovative Ameritram could dramatically cut the costs of building and maintaining streetcar systems by eliminating much of the need for overhead wire. Down the line we see Bombardier, Siemens, Kawasaki, and the other railway equipment manufacturers of the world gearing up for America’s new age.

Yet the revolution will come not through conservative entities like Amtrak, but through progressive railroads, with the Saratoga & North Creek and now the Florida East Coast  poised to lead the way.

You read that right — Amtrak is a conservative agency, in the truest sense.  It resists every attempt to change from within or without.  States who want to run new trains are rebuffed with absurd costs. All Amtrak seems to have done in the past forty years is slowly wither: Even the vaunted Acela only replaced the Metroliner, without adding appreciably to market penetration.  The fault lies not within their stars — for the people of Amtrak are generally eager and passionate about their work — but within the “self” of the organization, the bureaucratic fiber with which it is woven.

Must we dismantle Amtrak to build the future of passenger trains in America? Perhaps not, but consider New York’s Pennsylvania Station, designed by McKim, Mead, and White just over a hundred years ago.  The edifice fulfilled the role of being a temple of commerce — dare we say a temple devoted to the worship of the Pennsylvania Railroad itself?  It was the right building at the time, an advertisement in stone and steel for the wonders of steam and electricity, a sales brochure in motion for coach and Pullman travel. At the time of its opening, it was the largest and grandest railway station in the world.  The seeds of its demise lay in its foundations: Pennsy president Alexander Cassatt “wanted to add a large hotel upon the site, while [architect] McKim, who, with his classical training, was vehemently opposed to high-rise, ‘anti-urban’ buildings did not… McKim won the argument, and retained the contract. Yet it must be added that the addition of a revenue-earning tower block to the station might have helped to stave off [its] demolition in the 1960s.” (“Pennsylvania Station” Steven Parissien, Phaidon Press, 1996, p.8)

By the late 1950s, the Pennsylvania recognized that its monument no longer fulfilled the commercial needs of the day.  In the battle of Art versus Commerce, was it wrong for a corporation bound to make profit for its shareholders to forsake a building which had come to be regarded more as Form than Function?  I suggest not, although certainly some architect could have done better than the dismal Madison Square Garden which today perches over the platforms, a poorly applied bandage on the open wound of our nation’s unhealed transportation network.

Just as the imperial Pennsylvania Station symbolized its builder, so too does today’s “Penn Station” represent Amtrak: A field of opportunity which has lain fallow for decades too long.

If you cannot see the fortune to be made in passenger trains in your home state, in your home town, then open your eyes.  State after state, region after region, and eventually railroad after railroad are ready to move beyond the past into the future.

And the readers of this column, assembled, have everything required to effect the revolution.

In this ongoing column, we will consider the design of the trains, the buildings, the network, the connections, and the opportunities which await.  We have an exciting journey before us in the third century of American Rail Travel.

From the Editors…

This Week at Amtrak returns to Washington for the two day Passenger Trains on Freight Railroads conference held by Railway Age Magazine.

Editors: D & D Carleton              Proofreading: Black Bear Wordsmiths (blackbearws@yahoo.com)

 The fading perception of how the future will move

By Daniel Carleton

What a difference a year makes

“I missed the first half of Stan Feinsod’s speech. I’m sure he said that all future passenger service should be run by Amtrak.” – Al Engel, then-Vice-President – High-Speed Rail, Amtrak

Irony has been defined as “incongruity between what is expected to be and what actually is, or a situation or result showing such incongruity.” It has also been implied that irony has been the ethos of the last half-century or more. Perhaps it is because of this ethos that we not only accept irony when we find it, but will expend resources in order to maintain the irony, in the belief that all expectations are valid.

The previous year’s conference had a buzz so loud one might recommend hearing protection. Nothing brings in a crowd like money, and where federal dollars are a possibility, there definitely will be policy wonks. It was the first such conference following the President’s admonition to build something called “High-Speed Rail.” The twelve months that followed were a political rollercoaster for the socialized passenger rail faithful, with adverse election results and cancelled projects in Ohio, Wisconsin and Florida. At this year’s meeting, the buzz was replaced with a vacuum. HSR was mentioned, repeatedly even, but it did not carry the same punch as it did last year. Even though many of the faces were the same there was definitely a change in the air.

This would be the eighteenth conference of this nature and it has become something of a tradition, where the editor of Railway Age opens the conference by asking how many in attendance have been to all of them. Every year that number grows smaller. This year the overall attendance was smaller than last, most likely due to the Railway Interchange gathering in Minneapolis the previous month.

Picking up where he had left off just days earlier, Association of American Railroads President and CEO Ed Hamberger gave the keynote address, hitting upon many of the same points. He did add some interesting anecdotes: Time magazine called the AAR, first time in 12 years, to verify a rumor it had heard that the railroads actually owned their own track. In a survey of business leaders, only 40% knew the railroads owned their own track; 50% thought railroads were public-private partnerships. On the plus side, the railroads handle one-third of all exports to their port of departure.

But this was a conference on passenger trains, and he did succinctly outline the railroad’s stance on expansion; there will be “no harm done” to the existing flow of freight traffic on today’s railroads. If one desires to operate passenger trains where none exist right now, there are four things which need to be considered: Capacity, Liability, Safety and Compensation. On the subject of compensation, and as was copiously illustrated at last year’s conference, a new service does not fall under the Railpax agreement of 1970; the price per mile for access will be higher and closer in line with actual cost to the railroads for such access. That being said, the railroads do have a goal of “getting to yes” when it comes to more passenger trains. This is quite a paradigm shift from even just a few years ago, when the answer was a qualified “no.” Apparently, the states have learned their lesson and now bring appropriate quantities of cash along with a realistic attitude when approaching the railroads with their passenger train perceptions.

Hamberger made it clear that the lawsuit AAR filed as a result of federal regulation, allowing Amtrak authority to promulgate the rules with respect to the conduct of the railroads and timeliness of passenger trains, was directed not at Amtrak, but at the Federal Railway Administration. A decision on this is expected this Spring. He also repeated the official stance of the railroads that the accepted operator of intercity passenger trains is Amtrak. He neither explained nor elaborated on this.

Many will take solace in the notion that the AAR has given its seeming endorsement to Amtrak as the sole operator of non-commuter trains in the country. As the conference wore on, however, it was clear that not all shared this opinion.

The conviction of the old guard

Eugene Skoropowski, then a director with HNTB, wears the mantle of elder statesman for state-sponsored passenger rail. Therefore, it was something as a surprise, for him as well as for those in attendance, when Railway Age approached him to write an article and make a presentation on the idea of a private-sector role in intercity rail. The article, as well as his presentation, made the argument that full operation by the freight railroads is not in the cards:

Today’s freight railroads might be expected to participate constructively in cooperative development of a rejuvenated, higher performance passenger rail system, but their business model no longer allows them to be sources of capital investment or operating support for passenger services. To accomplish this would require the freight railroads to pour billions of dollars into their infrastructure for double-tracking, sidings, signaling, etc., and that’s not going to happen. – Eugene Skoropowski, How private enterprise can strengthen Amtrak, Railway Age Magazine, October 2011

He went on to extol existing partnerships between the railroads and passenger operators in New England, California and North Carolina. What could private enterprise bring to the table of passenger rail? No one knows the railroad business better than the railroads. But there lingers the persistent belief that public money is necessary, and the availability of such money is cyclical.

One of the presumed roadblocks to an outside agency operating a state-sponsored passenger rail service is the necessity of indemnification. Amtrak currently is required to carry a $200 million policy for its services. Based upon his experience in California, Mr. Skoropowski stated it was not legal for a state agency to obtain insurance for a third party. At this point, Ray Lanman, Vice President, Corporate Development at Herzog Transit Services, spoke up and stated that “anyone can buy $200 million of insurance.” It is a cost of business and is priced into the cost of such business. Amtrak already does this.

Ironically, Skoropowski would join the Florida East Coast Railway five months later as its senior vice president of passenger rail development. The FEC would later announce its intentions to initiate passenger rail service between Central and South Florida; “a privately owned, operated and maintained intercity passenger rail service that will be a solution for millions of business travelers, families, and tourists.” – http://www.allaboardflorida.com

Frank Wilner, well known author and Public Relations Director for the United Transportation Union, also spoke on the possibility of the railroads resuming passenger rail services starting, off with, “Islands of socialism don’t fit well in the ocean of capitalism.” He followed this with the standard canard which states that long-distance passenger trains exist for the sole purpose of political support for funding the all-important Northeast Corridor. Railroads running passenger trains would be a “second best solution,” but if they did run them, this would remove the threat of losing access to private property.

If there was any point to be taken away about the role of the private sector in operating passenger trains, it may be simply stated that there are hurdles to overcome but they are not insurmountable.

Al Engel, then Amtrak’s Vice President – High-Speed Rail, addressed the gathering, spinning the same old yarn from the well-worn songbook, “The Northeast Corridor generates a surplus which supports the long-distance trains.” He then added that the NEC is at or close to capacity with 2200 trains per day. After talking about other corridors in the country, he was asked about the then ongoing negotiations with individual states for Section 209 of the Passenger Rail Investment and Improvement Act. At that time there were still “a few stragglers” who had not yet signed on. When asked where the long-tardy methodology for Section 209 could be found, he directed all of us to the website for the American Association of State Highway and Transportation Officials. Why this would be published with AASHTO, and not the FRA or Amtrak websites, is anyone’s guess. In keeping with the irony, Al Engel would leave Amtrak before the end of the year “to pursue other opportunities.”

Federal Railway Administrator Joe Szabo and his deputy, Rob Lauby, gave an update of the High-Speed Rail program even though there are no active high-speed projects in the country. The FRA has basically taken the stance of “If you don’t like what you see, lower your expectations,” and as a result, 110 mph projects to Detroit and St. Louis are considered “HSR.” Be that as it may, 98% of the American Recovery and Reinvestment Act funds have been obligated and one-third of TIGER grant money is going toward freight rail.

There were various updates from different states. Illinois is studying 220 mph trains between O’Hare Airport and downtown Chicago. The representative from North Carolina could not be there in person, but did send a narrated Power Point program outlining the challenges of selecting a route into downtown Raleigh. Regarding the upgrade in service between Chicago and St. Louis, the procurement process for new trainsets is underway. There will be six new sets of equipment consisting of five cars/two locomotives each. As for who will own these, that is still up in the air. There was no mention of Amtrak in this presentation.

In Pennsylvania, a shortline operating in and around Pittsburgh proposed establishing a light-rail type service along one of its routes. Following the presentation, this writer asked why a railroad would be interested in starting something like this. The answer was because the line in question has excess capacity. Immediately someone in the back of the room yelled, “You didn’t answer the question! Why are they doing this?” The real answer is that the owner stands to gain $30 million for the sale of the line, while retaining the freight rights. Now that is a good reason.

Finally, a breath of fresh air

A highlight, if not the highlight, of this gathering was the luncheon speech given by Stan Feinsod, a long-time transit contracting specialist with experience in project development and management, planning and engineering, operations and even streetcar specialties. He is currently a Business Development Advisor at Ratp Dev USA, serves as Secretary Treasurer of the Association of Independent Passenger Railroad Operators (AIPRO), and Co-Chair of the APTA Commuter Rail and High Speed and Intercity Passenger Rail Subcommittee. The full text of his discourse was reprinted with his gracious permission back in November 2011, and may be seen here: http://www.unitedrail.org/2011/11/08/the-path-forward-creating-an-american-high-performance-integrated-intercity-passenger-rail-system/

What he outlines is simple:

• A system based on the American economic model of competition.
• A system based on the private sector, and cooperation with the pre-eminent American freight railroads who own the most important rights-of-way.
• A system developed by a broad public-private partnership with the states and the federal government.
• A system that strives for continuously-improved performance and the reduction of travel time; a system that has excellent connectivity to the urban transport systems it serves.

No, this is not rocket science. Still, there were those present who believed he was asking for the moon.

A sample of success

It is really hard to argue with a company whose workout model is “only buy dogs.” Yet that is exactly what Iowa Pacific is doing under the careful hand of Amtrak alum-turned-entrepreneur Ed Ellis. An amalgam of shortline railroads, Iowa Pacific recently concluded a windfall with the sale of its Arizona Eastern line to another company. Although freight pays the bills, its passenger tourist line business is not a drag on the core.

Ellis pointed to the over 300 tourist railroads in the United States, and all of them — at the very least — cover their costs. Last year, Iowa Pacific commenced a new passenger service in upstate New York, the Saratoga & North Creek Railroad. This is no backwoods operation isolated from the rest of the network. It runs out of the same municipally-owned station as Amtrak trains in Saratoga Springs, and operates over a short stretch of Canadian Pacific mainline before diverging onto the branch to North Creek. It complies fully with 49CFR238, the Federal Code governing passenger trains. By the time of the conference, the S&NC had 30,000 boardings in the first three months of service.

Iowa Pacific has its own national reservation center and maintenance facilities. The vision for its fleet of rolling stock is “return to zero age.” Cognizant of its responsibilities, the Iowa Pacific is very clear that the burden and reward for its services rests solely on its own shoulders. Last year. the S&NC covered all costs above-the-rail , this year it expects to cover all fully-allocated costs. The S&NC receives no subsidy.

The quest for reality

Longtime conference attendee and presenter Al Fazio projected pictures of the Concorde SST and Boeing 747 with the subheading “defining a purpose.” Both had their first flights in 1969 and both carried the dreams representing the future of transportation. Whereas only 20 SST’s were built (and all were since retired), over 1400 copies of 747 variants have been constructed and continue to be built. In short, Boeing was right; the future was not about speed but rather efficiency. And now, four decades later, it is time for passenger rail to face this stunning if simple reality: While sleek and sexy bullet trains make for great models and posters, it is the everyday high-performance passenger trains which will get the job done.

But who will operate these new trains? Outside of the New York metropolitan area, most commuter rail systems are contracted out to private operators or, as is seen in Chicago, the freight railroads. Amtrak is currently the default-operator of choice for all other services, and sells itself as the sole keeper of the American passenger railroad. Is there any real reason to maintain the status quo? This conference successfully challenged that notion, making it very clear that there are entrepreneurs waiting in the wings for the opportunity to flex their experience and acumen for the benefit of the operation and expansion of the nation’s passenger rail network.

Perhaps it was multiple generations of science-fiction television that raised the expectations of the modern populace. Many who are at or past “middle age” believed flying cars would be the travel mode of choice at least by the Twenty-first Century. That expectation is easily dismissed, however, because individually we make an accounting of our own coffers and recognize our financial limits. This is the personification of fiscal responsibility. Even so, many still expect passenger trains to be something out of a futuristic novel; and upon arriving at the station, are then disappointed by what they see. A steady diet of fast-train phantasms by well-meaning but grossly-mistaken politicos feeds this disappointment, and the incongruity between fantasy and reality effectively sours the public to passenger train travel. There are those who feed off this incongruity by selling fast trains that are at best superfluous — at worst, exorbitant. There are others, however, who endorse fiscal responsibility by offering efficient, well-thought-out-service that satisfies the need and covers its costs. We applaud them. Loudly.

From the Editors…

This Week goes to Washington to see what the transportation thinkers are thinking.

Editors: D & D Carleton                Proofreading: Black Bear Wordsmiths (blackbearws@yahoo.com)

The end of the era of seemingly free money

By Daniel Carleton

By October [1908] the race to become the [Georgia & Florida] shop town was in full swing. Civic boosters realized that inducements were expected; railroads had long made such demands. Understandably officials received several proposals for “this ripe, mellow plum.” Augusta offered thirty acres and $20,000 or $30,000 without the land; Douglas tendered 100 acres and $10,000, Hazlehurst volunteered 100 acres and $5000, and Vidalia replicated the Hazlehurst deal. Valdosta, though, did not propose a specific amount of either real estate or cash incentives. – H. Roger Grant, Rails Through the Wiregrass, A History of the Georgia & Florida Railroad, Northern Illinois University Press, 2006

One might be forgiven the notion for thinking the above transactions were translated from ancient hieroglyphics on some wall in the Valley of the Kings. It is almost impossible to believe that this was just over a century ago, let alone the notion that, once upon a time, cities would do all that they could to coerce a private transportation company to build infrastructure there. It was quid pro quo; the railroads received the land and resources for infrastructure, and the town received a source of stable employment and property taxes.

It was at about the same time that maleficent forces of social engineering began to upend this long standing balance. In 1906, the Hepburn Act gave teeth to the perceived weak Interstate Commerce Commission. This exercise would cause apoplexy for private investment to the American Railroads over the next seven decades. Then, following advances in internal combustion (and forgetting the lesson of the National Road debacle of the early Nineteenth Century), minions of a “Progressive” bent set an agenda that fomented a litany stipulating that capital investment and maintenance of transportation infrastructure be the exclusive purview of minor and major branches of government. Instead of voluntarily ceding money and property for the benefit of the greater good, both would now be taken with or without consent under the auspices of the National Interest. One century later, we are just beginning to awaken to the aftermath of this invocation.

More than just another Friday in Washington

Sponsored by Norfolk Southern and hosted by The Washington Post at its building in Washington, D.C. was the conference entitled Fixing America’s Foundation: Rebuilding Transportation Infrastructure held October 14, 2011. Highlights of the discourses were covered in a special section of the October 23rd Washington Post. All those from the Post who were involved in this affair are to be commended for opening their “home” to us outsiders for a glimpse into their world.

Even so, as with most modern media, an enlightened look at its coverage reveals just how disconnected the Fourth Estate has become with the infrastructure which makes everything else work. On the front of the special section is an illustrated panorama depicting planes, trains, automobiles, and ships, with a number worked into each stylized depiction. The number is purported to reflect the ranking of domestic infrastructure as calculated by The Global Competitiveness Report 2011-12, World Economic Forum, but there is no formula given as to how this status was obtained. If the picture is to be believed, then American railroad infrastructure is 20^th in the world, as are U.S. roads. Domestic air travel infrastructure is 31^st and ports are 23^rd. Moreover, in the opening paragraph introducing the discussion, it was stated, “There was an epic push to build railroads in this country a century ago and then an impressive plan to build interstate highways from 1956 to 1992. But little investment and maintenance has happened since.” Comparing the initial construction of railroads and highways totally misses the point, and is enough to give a historian a migraine; but to say there has been “little investment and maintenance” in railroads will give the railroad proponent chest pains.

“We need to find pots of money…”

U.S. Department of Transportation Secretary Ray LaHood highlighted the plans of the administration: Fifty billion dollars for roads, bridges, transit, and high-speed rail. It is easy to see that the Secretary still believes in the concept of the money trough: “…We need to find pots of money to do big things and to leverage that money against private money in the country. No better way to do it than the infrastructure bank.” The railroads, even when they were built with public money, were owned, operated and maintained with private money. The interstate highway program was different, relying on a trust fund held by the federal government.

Florida’s favorite son, U.S. Representative John Mica, Chairman of the House Transportation and Infrastructure Committee, sees the problem quite differently. He does not reject the idea of infrastructure banking outright; however he does point out other limiting issues: “It’s a good idea, but I have 33 states that already have infrastructure banks, and we had some of them testify. They have no money. It would take a year to set up an infrastructure bank under the terms of the legislation that we’ve reviewed. It would take about $270 million [per year] to operate it in the incumbent bureaucracy, plus having people on bended knees to get an approval.” It would appear Mr. Mica has a handle on what all is involved in the workings of dispensing public monies.

As for the local scene, perhaps Richard Sarles, General Manager and CEO of WMATA said it best:

“We talk about Washington Metro, it’s an example of what happens after ribbons are cut. Systems are ignored. It begins to set and decay. When decay sets in, there’s less popular support for funding. And when that happens, you’re in a slow, agonizing descent to the bottom.”

(As an aside, this writer, who used the METRO as a means of attending this conference, was delayed over an hour due to some nebulous “major backup downtown” followed by “There’s nothing we can do.” Apparently the “agonizing descent” has begun.)

Pick your priorities

Later, a panel discussion of four participants, including WMATA’s Sarles, was outlining its world view of national infrastructure priorities. It should come as no surprise that T. Peter Ruane, President and CEO of the American Road and Transportation Builders Association, declared, “The No.1 priority is for the [U.S.] Congress to do its job…and pass a long-term surface transportation reauthorization program.” Of course that is easier said than done. The representative from the U.S. Chamber of Commerce relayed the message from her members to fix the roads and rebuild the interstate highway system, but added the national presence of a “mindset” that these roads are bought and paid for with no further need of investment. Such is the result of labeling your road a “freeway.” The figure of $50 billion was cited to describe the backlog of work needed in transit; METRO’s maintenance backlog was staked at $10 billion. Otherwise, there were no real specific priorities mentioned.

The bottom line

Following a break, there was another panel discussion, this time addressing the big unknown: How to pay for it all. Most of the revelations, however, were not too revealing, merely citing what used to work and what no longer works. One breath of fresh air came from Robert Puentes, Senior Fellow of the Brookings Institution’s Metropolitan Policy Program:

They’re talking about raising gasoline taxes in Iowa. In Maryland, they’re talking about land value capture [raising funds for transportation by capturing a portion of land value gains associated with public infrastructure]. Minnesota’s looking into that, too. In Salt Lake City, in Phoenix, Oklahoma City, Los Angles – these places are going to their voters and raising their own taxes at the ballot box.”

One point was made very, very clear: The traditional sources of revenue for transportation, i.e. federal gas tax, state gas tax, and public debt through municipal bonds, are irrevocably broken. This old way of doing business was dependant upon the ever-rising sales of gasoline and the garnering of said taxes. The sale of gas in this country peaked in August, 2007. Coincident with all of this are the trends of teenagers postponing getting their driver’s licenses, and teens/20-somethings driving less than previous generations. This is a sea change in what was once a cyclical system, with one participant going so far as to say, “The gas tax is now a minority source of funds.” The Highway Trust fund was bailed out by federal stimulus funds, and through it 35,000 miles of roads were renewed in 11 months; but no one in that room was so naïve so as to believe this would happen again.

Those who took the time to attend this meeting were predominantly highway builders and proponents. Most of these people, long rewarded for their work in the field of laying asphalt, have seen the money well run dry. What they really want most of all in the whole wide world is to see a reverse in the trend of declining automobile passenger miles and gasoline consumption. Well, good luck with that.

There is always one in the crowd (thank goodness)

Despite all the anemic news and seemingly dead-end discussion, there was one very bright spot in the world of American transportation. Edward Hamberger, President and CEO of the Association of American Railroads, showed everyone else how it was done:

Thirty-one years ago, Jimmy Carter, the President, signed the Staggers Rail Act, which partially deregulated the freight rail industry in the country. At that time, 25 percent of the industry was in bankruptcy. We had something called deferred maintenance.

Today, Secretary LaHood referred to the [freight rail] industry as the envy of the world. That’s because we’ve spent $480 billion in the last 31 years. In February, the President said to private America: Get off the sidelines; spend money and hire people. We’re spending $13 billion in [capitol expenditure] this year and hiring 15,000 people.

Just to make it clear, not everybody knows it: We are privately owned, privately maintained, pay taxes on our right of way.

Of course, as this meeting was in Washington, D.C., there was the obligatory government representative who had the unenviable task of justifying his (public salary) job. This person addressed the popular desire to streamline the environmental review process, stating that the problem was not the process, but the lack of funding for the project requiring the review.

Ostensibly it goes like this: Some politico requests a review of some project with no guarantee that the project will be funded or even move further than the drawing board. As this is the case, then maybe one or two people will be assigned to the review just to placate the politico even though the money was not and may never be there. Mr. Hamberger immediately retorted that, in the case of the railroads, the money was there. He should know. Recently Norfolk Southern placed a newly-built (from scratch) five mile stretch of track in service in western Pennsylvania; it took six years. Three and half years were just for permitting, with the final year and a half for construction. The time for actual installation of track? Two months. After almost 200 years of railroading, should it really take six years to build five miles of track?

It is time to pay the piper…and he is NOT accepting credit

The simple reality is that the condition of the national infrastructure is just another can that has been kicked down the road for multiple terms and administrations. Unfortunately, that can has now fallen into a pothole; a pothole the size of the Grand Canyon. That the U.S. Highway Trust Fund has run dry should not be a surprise to anyone, especially those in the nation’s Capitol:

“In May 2002, the full coalition met with [Federal Highway Administrator Mary] Peters on its annual trip to Washington, and she assured the members that there was still a ‘federal interest’ in I-69. But there was no money for it. ‘We are in a zero-sum game,’ she told them. The federal gas tax, which had been the main source of money for highways since 1956, was losing its effectiveness, she explained, because as cars were becoming more efficient, drivers were paying less per mile…She told the coalition that it was time to look hard at innovative financing to augment or even replace the gas tax.” – Matt Dellinger, Interstate 69, The Unfinished History of the Last Great American Highway, Scribner, 2010

During the luncheon discussion that closed out the meeting, there was an innovative exercise in audience participation. Each of us found a small electronic selector box placed alongside his silverware. As we ate, questions were asked, and the results were immediately tabulated on large video screens. Of note, when asked what should have the priority in transportation – passenger or freight – the overwhelming response was freight. When the subject of gas taxes was raised, the likely choices included raising the federal gas tax, imposing a vehicle mileage tax or raising state taxes. No one believed the public would stomach a higher federal tax; the vast majority looked to higher state and local gas taxes.

Thus, it appears the federal gas tax is dead. Everyone involved with highway engineering, design or planning is on one of the five steps of the Kübler-Ross model. Hopefully, this conference will help some of them get to “acceptance” of the end of the free ride. They will be in the role of the displaced, as transportation shifts from an imperious edict of political hubris to refocusing on transportation where it is needed and warranted.

As for the railroads, they are holding their own, investing their own dollars into their own physical plant as dictated by the actual needs and growth of their customers. With this in mind, both Ed Hamberger and Wick Moorman, Norfolk Southern President and CEO, were asked separately why the railroads would organize and participate in such a conference. After all, if the competing modes of transportation are “chasing their own tails,” would that not be all the more beneficial for the railroads? Both Hamberger and Moorman gave the same answer: All modes of transportation are interdependent of one another. The railroad may move the container from one intermodal yard to another, but without the roads completing “the last mile,” then the move is for naught. The railroad may move the train to the port, but if the port cannot efficiently load and unload the freight, then the railroad’s efficacy is lost.

Norfolk Southern realizes all too well that its existence is dependent on these other modes; modes which, due to actions a century ago, are dependent upon public monies to effect a state of good repair. The railroads recognize and support the National Interest, not as a means of political gain, but rather as a necessity for financial survival.

Businesses are beginning to awaken to the reality of this new era of transportation in which they now find themselves. If there is any lesson to be learned from this October soirée, it is simply that if one pins the success of one’s enterprise solely on publicly-funded transportation, one’s enterprise is likely to stagnate or fail. Yes, in good times past, the priority was for public funds to placate political hubris.

A century ago the hypothesis for the experiment of socialized transportation proposed that government owned/operated transportation was the proper tonic for “railroad monopolists.” The French philosopher Denis Diderot once observed, “In order to shake a hypothesis, it is sometimes not necessary to do anything more than push it as far as it will go.” Socialized transportation reached its zenith in August of 2007 when motor fuel demand, along with fuel tax revenue, peaked. The hypothesis has been pushed as far as it will go, but there are those whose priority is to push it further even if this means stimulus from the general revenue stream. Now is the time to redefine those priorities.

For those of us with something of a useful institutional memory, it’s like deja vu all over again, as a celebrated sports figure once said.

Remember the heartburn and ultimate heartache that went into the design and manufacture and subsequent legal battle over the Acela trainsets Amtrak uses on the Northeast Corridor? It’s back, in a 21st Century setting.

CAF-USA, an American fully owned subsidiary of Construcciones y Auxiliar de Ferrocarriles of Spain – a worldwide know manufacturer of passenger rail cars of all types – which is building nearly $300 million worth of new Viewliner-type cars for Amtrak in the form of sleepers, diners, and baggage cars has reportedly received a “stop work” letter from Amtrak.

Information provided to The Business and Politics of Passenger Rail indicates CAF-USA was sent a stop work letter on Friday, April 6, 2012. One of the reasons indicated was CAF-USA is far behind meeting an agreed upon production schedule.

CAF-USA has performed – and completed – other work in the United States for regional and local transit agencies such as the City of Pittsburgh, and is currently working on a contract for the Houston, Texas transit system. CAF-USA performs work at its facility in Elmira Heights, New York. CAF-USA has actively bid on other work in the United States, too, such as for New Jersey Transit.

This is not the first time a foreign-controlled passenger rail car manufacturer has run into problems fulfilling American contracts.

Here are some details:

• Southeast Pennsylvania Commuter Rail Authority (SEPTA) – Silverliner V electrical multiple-unit commuter railcar purchase 2006-2010 – 120 units ordered from United Transit Systems, Masan, South Korea, in 2006. Three complete new railcars built in Masan delivered May 2010, along with shells for remaining order to be assembled in Philadelphia. Time elapsed from order to delivery: nearly 4 years. This was considered an on-time delivery. http://www.septa.org/media/short/2010/03-08.html
• Connecticut Department of Transportation/Metro North Railroad – M8 electrical multiple-unit commuter car purchase 2005-2010 – CDOT/MNR specifications put out to bid December 2005. Contract for 300 cars plus option on 80 more awarded to Kawasaki, Inc., August 26, 2006. Manufacturer advised possible delays due to steel shortages. First 38 cars to be built in Japan, remainder in Lincoln, Nebraska. Eight car train for testing (without passengers) promised for late 2009, but did not arrive until 2010. An order of 100 production cars was delivered in April 2012, and the first cars now are undergoing testing.
  • On the Connecticut .gov site
  • Comments on Trainorders
  • Talking Transportation Blog
• Southern California Regional Rail Authority commuter car purchase 2007-2010 – SCRRA awarded the Korean/Japanese consortium Rotem an order for 54 trailer and 33 cab cars, plus two options, each for 10 additional cab cars, on February 24, 2007. The cab cars incorporated new Crash Energy Management features never before used on U.S. passenger railcars. The first cars were shipped at the end of January, 2010, but problems were discovered and the cars underwent refitting and testing before being allowed into service.
• Minneapolis Metro light-railcar purchase 2001-2004 – In January 2001 Minneapolis Metro ordered 14 Bombardier Flexity light-rail cars for the opening of its Hiawatha Line in 2003. As Opening Day approached, Metro ordered six more of the same design. The first car sets arrived in June 2003, and were tested and accepted before the line opened in June 2004. The remaining cars were delivered on schedule.

And, then there was the front page of the Chicago Tribune of Thursday, April 12, 2012 (yesterday). Reporters Jon Hilkevitch and David Kidwell told the world the administration of Chicago Mayor Rahm Emanuel and the Chicago Transit Authority engaged in private discussions for a $300 million no-bid contract with Bombardier Transportation – which is manufacturing the CTA’s new railcars – to build and operate a rail car overhaul facility on vacant city and CTA land.

The Tribune reports the talks went on for 10 months to create a public-private partnership, but ended when the Tribune disclosed Bombardier has defective-part problems with the ongoing production of 706 new rail cars under a contract for taxpayer monies of $1.14 billion. Bombardier was forced to recall 54 rail cars it had already built and delivered to the CTA and stop production on about 650 other cars because CTA inspectors determined Bombardier was installing defective rail car wheel assembly parts made in China.

The defective parts installation and recall were reported exclusively by the Tribune on March 8, 2012.

These episodes together point to a difficulty state or regional or local passenger rail agencies – indeed, Amtrak, too – have in securing high performing contracts for the procurement of new rolling stock. This is a problem which besets both public and private operators.

Perhaps the unpleasant part is America continues to lead the world in technology and industrial know-how for manufacturing freight cars – what’s the problem with passenger rail cars? We saw the failure of Colorado Railcar, but that was mostly a self-inflicted management problem.

We saw Amerail, which manufactured the original Amtrak Viewliner order, but they disappeared into foreign-owned and controlled Alstom. Pullman Standard’s last hurrah was the Amtrak Superliner I equipment, decades ago. Bombardier built the Superliner II equipment. The Budd Company, builder of the Sherman Tanks that masquerade as passenger cars for VIA Rail Canada and some for Amtrak that have lasted in continuous service for over half a century and are still going strong, now is out of the passenger rail car business, and builds parts for automobile bodies.

Where is the next generation of American passenger car builders? Where are the small builders which can grow to handle the coming orders, and meet contract specifications and on-time delivery? It’s not just a matter of technology – it’s a matter of pride, work ethic, and desire to create a lasting product which will proudly carry a builder plate with a name which will last for decades.

Where are these people? If the new surge of passenger rail in America is going to get running, it’s going to be up to an American manufacturer – with American interests – to make it happen.